November 20, 1915

The Hope of the Minimum Wage

Minimum wage laws are to all practical intents as yet untried in the United States. Even their validity remains doubtful, for the Supreme Court still holds undecided the test case argued nearly a year ago. Un Australia, where analogous laws have been in operation for over ten years, it is different, and in the current number of the Harvard Law Review one may learn from Mr. Justice Higgins, President of the Court of Conciliation and Arbitration, how the federal law has worked during the eight years that he has been the only official charged with its enforcement.

That court, which must not be confused with the intra-state wage-boards or industrial courts, has power to act only when the industry affected covers more than one state of Australia, but in such case it acts with the fullest latitude. Like our own commissions for the regulation of railways and other common carriers, the statute gives the Court power to fix a “fair and reasonable” wage which may thereafter be enforced by penalties. This is not less than to put the whole problem upon the Court, because the words “fair and reasonable” are no more than a rhetorical admonition that the positions of each party must be heard and regarded. Nor is there apparently any appeal, except when the Court has decided a case not provided for by the act. In other cases the Court calls together the parties for conciliation, and if they cannot themselves agree, proceeds to a compulsory settlement of their differences, without lawyers, without the rules of evidence, and which as much informality as seems to it convenient. All this, however, is not done summarily, nor without the delays unhappily inevitable to any honest inquiry into complicated facts. Nor do we learn that the Court may use evidence of which the parties are not informed, a limitation inherent in the fair settlement of any controversy.

In practice the Court has proceeded upon the assumption that no industry is legal which cannot and does not pay a “living wage”—this being a wholly relative phrase, to be determined from time to time according to the cost of those things which the workman must buy: rent, food, clothes, fuel and the like. But the Court goes beyond this and fixes the “fair and reasonable” value of skilled wages above what it would fix for a “living wage.” It has even the power—seldom if ever exercised except to break down obvious attempts at destroying a union—of compelling the employer to give preference in employment to a union, thus recognizing the union as a legal means for the protection of the workmen. Such a doctrine contrasts strangely with the doctrine of our own Supreme Court, that a law designed to prevent employers from breaking down unions can have no rational public purpose.

The rule for fixing wages is not defined; obviously it cannot be. The award must be made after considering the relative strength of the two contending parties, and success must rest upon the Court’s divination of what the resultant of forces would be. Such awards accomplish what they frankly are intended to accomplish, the avoidance of those economic struggles which are so wasteful to both parties. What a well-organized union and an intelligent body of employers might reach by collective bargaining, Australia reaches by a court, but the basis of settlement must in both cases be the same, viz, the probable result if each side fought to a finish. This perhaps is the only meaning that justice can have in the circumstances.

The “living wage” comes from a wholly independent theory. In this we find the state taking sides and refusing to allow the economic power of either side uncontrolled opportunity. The state will not allow industry to proceed at all if it cannot pay the workmen what it chooses to fix as a standard—an “arbitrary” standard, if one likes contentious adjectives. This phase is what may interest us especially.

A more formidable argument may be made against the plan than is often recognized by its adherents. The state forbids anyone to employ men at less than a prescribed wage, sometimes higher than is current in the industry. Unless those who are earning less can get work at the new wage they become dependents, so that their right to work for the old wave may seem to them a very genuine “freedom.” The distress which drives them to take low-paid jobs is an external pressure, but, given the situation the “freedom of contract” gives them some help to withstand it; while the minimum wage takes that away and leaves nothing in its stead. Nor can we have any assurance that work at the new wage can be found for all who could get it at the old, even so much casual employment it might make up the sum of the old earnings.

The addition to wages must be made up either out of profits, out of the price of the article made, or out of an increased efficiency. There is no certainty that it will come out of profits, because the new wage is not to be applied alone to those employers whose profits are ample. Economists have long told us of the marginal producer, who, as it is, can just make both ends meet; his profits are nominal, yet his portion of the total production is as real as anyone’s. Add to his burdens and you throw his men out of work. The first incidence of the theory would be to push out the weakest members of the trade. Nor is the situation necessarily met by raising the price, for that generally cuts down the amount which can be marketed; this is but another aspect of the first objection. As for the last suggestion, that higher wages bring their own increased efficiency, that depends largely upon the character of consumption, and in any case it operates slowly. Besides, it presupposes that those who were not making standard wages when the change came can keep their jobs, which we have seen to be only an assumption. It will not improve the workers’ morale or efficiency to be awarded a standard wage when there are no jobs open.

Reasoning of this kind may not be positive, and we have come to be suspicious of it, yet it does uncover possibilities. Replying by the same kind of argument, we may retort that an increase of wages does not operate in any such automatic way as has been presupposed, and does not throw capital at one out of employment. Industry is not a reservoir which transmits at once a change of pressure; rather it is a compressible medium with immense room for the “take-up” of local pressures. We may reasonably believe that there will be a period within which the effects of better living may be made known in increased efficiency while the old jobs are open. Indeed it is in this possibility that the best hope of the undertaking lies, one that we must never forget while the chance remains open. It is a means of education, a step forward, in the standard of living. Much will depend upon the way the increase is used, but it has been long recognized that a sudden rise in the standard of living may alone be enough to raise the class which gets it, since it reacts upon their own mental attitude towards life. Some relief from the oppression of physical privations, some security for a future, some provision against disease and unemployment, may so change the workman’s approach to his daily routine as to make the increased wage a cheap industrial expedient, even when viewed in the most mechanical way. The result stands in trial, not in dialectic; but we must insist upon the reasonable expectation of those who view it hopefully, and we must seek to advance it, at least until it has been demonstrated to be false.

Yet even if this hope proved finally disappointing, much good will still come from the minimum wage. No doubt there will always be some who are incompetent under any system to produce enough to keep themselves and their families on that material level which is necessary for such citizenship as any state ought to fix. To insure to these the same standard of living is to harness them upon the competent; the alternative is to admit that they are dependents. It is with this in mind that Taussig speaks of the problem of the standard wage as part of the problem of the unemployable. Is the standard of living any advantage in dealing with this problem? The common way of meeting the difficulty has been to give such persons license to work at lower rates—obviously an expedient which may undermine the whole system against guarded jealousy. Let us suppose that it extends only to those who are so handicapped as to be beyond stimulation. These, then, take on a new status; they become citizens who cannot produce as much as the state hold necessary. By that very fact they would seem to fall out of the class which has full civil rights; they are among the dependents or deficients, who must either be carried by the rest, or radiate the social body with their influence.

The conclusion sounds harsh, but it is only because the existing facts are generally hidden. A standard of living does not create such persons, it only discloses them; they exist now, equally a burden upon the state, contributing to the indefinite and obscure mass of misery which loads and makes dubious the whole. To fix a standard which all must reach or be dubbed incompetent is one step towards facing the problems which the existing apathy conceals but does not modify. It will be an everlasting advantage if once we can clearly recognize that without some material standard citizenship is impossible, because then we shall, by implication at least, have asserted that some standard of full citizenship exits. What our society or any other will do in the face of that recognition is an immensely more complicated matter. Yet we can hardly suppose that, having set out to realize such a moral standard founded, as it is, on material wants, and perceiving its need for some guarantee against destruction by casual unemployment, any society will leave unregulated in its conduct, and especially in its numbers, that class which is permanently incapable of rising to those requirements.

Any such vision is many years in the future in such a country as our own. Purposes so thoroughgoing will be qualified by traditional scruples and obscured by sentimentalism masquerading as humane feeling. Yet the certain hope of standards of which this Australian experiment is one, even if we are disappointed in its ability to raise the capacity of the workmen, is that it will force upon our recognition the existence of those who are unable to become the kind of citizens we can tolerate. And we can be sure that all which throws into the highlight the facts of our social structure will help us to improve it, since the one ruthless condition of advance for any society is an increasing store of self-knowledge.

Learned Hand was Chief Judge of the United States Court of Appeals for the Second Circuit.